Showing papers on "Opportunism published in 1991"

Pretia ex Machina? Prices and Process in Long-Term Contracts

Abstract: AIMONG the primary motives for writing contracts identified in both the law and economics literatures is the desire to protect against the hazards inherent to exchange where one or both parties have invested in reliance, or relationship-specific assets, in support of the transaction.' Because such investments have a higher value in their intended than in their next best use, parties have an incentive to engage in haggling or other forms of opportunism in hopes of influencing the distribution of the resulting quasi rents. Contracts promote efficiency by securing the distribution of those rents ex ante, thereby avoiding costly repetitive bargaining over the terms of trade and reducing the risk for each party of relying on the performance of the other. In reality, this description of the role and functioning of contracting is oversimplified. As a number of legal and economic scholars have emphasized, contracts are not the precise, mechanically enforced documents often encountered in economic theory.2 Indeed, contracts are extremely

Efficient vs. Opportunistic Choice of Accounting Procedures: Corporate Control Contests

Abstract: SYNOPSIS AND INTRODUCTION: Accounting numbers are an integral part of the firm's formal and informal contracts (Watts 1974; Holthausen and Leftwich 1983; Watts and Zimmerman 1986; Ball 1989; Christie 1990). This contracting-based theory of accounting is based on the premise that managers choose particular accounting procedures either efficiently to maximize the value of the firm, or opportunistically to make the manager better off at the expense of some other contracting party (Holthausen 1990). The relative amounts of efficiency and opportunism depend on controls on managers' accounting discretion. Such controls include monitoring by the board of directors, competition from the product markets and from within the firm by other managers, and the discipline of the market for corporate control. It is difficult to determine whether managers make accounting choices to maximize firm-value. Empirical tests often assume opportunism and usually rejectthe null hypothesis of no association between accounting choice and firm-specific variables such as leverage (Christie 1990). However, many of the empirical regularities interpreted as evidence of opportunism can also be interpreted as occurring for efficiency reasons, which serves to confound these findings (Watts and Zimmerman 1986; Watts and Zimmerman 1990; Sweeney 1994). The few tests based on efficiency rationales find an association between the contracting variables and accounting choice (Zimmer 1986; Whittred 1987; Malmquist 1990; Mian and Smith 1990a).

Specific Investments, Contracts, and Opportunism: The Evolution of Railroad Sidetrack Agreements

Abstract: HE maximization ofjoint long-term profits in a purchaser-supplier relationship often requires investment in assets that are in some way dedicated to the specific relationship and that, once in place, would have significantly reduced value in alternative uses. Such a disparity in value between first-best and second-best applications may create the potential for postinvestment opportunistic behavior-"jockeying" over the available quasi rents-and the potential for such behavior may act as a deterrent to the initial investment.

Contractual Relationships in the Deregulated Transportation Marketplace

Abstract: W HAT questions would we want answered from an economic theory that sought to explain how a modern, industrialized society organizes production? Such a theory would begin by asking what social institutions have evolved to foster exchange, cooperation, and dispute resolution among economic agents. Such a theory would explain how production is organized between public enterprises and private, profit-seeking firms. Such a theory would explain how similar and complementary activities are organized among firms within industries. And such a theory would explain what control mechanisms have been adopted by firms and other organizations to discourage shirking and other forms of opportunism and to facilitate improved decision making in a world characterized by uncertainty.1 Despite this intimidating research agenda, economists and organization theorists have made impressive strides in developing a theory of economic organization. Important insights have been gained through a better understanding of the nature and efficiency implications of alternative governance structures and property rights, the role of different control mechanisms for mitigating the principal-agent problem, the nature of costs in multiproduct firms, the contractual nature of the firm, and how imperfect and asymmetric information can affect competitive behavior. This re-

Toward a Distinctive Canadian Corporate Law Regime

Abstract: In this article, the authors consider the impact of the institutional and market environment in which Canadian business operates on the structure of corporate and securities law. The authors argue that the linkages between markets and law have been neglected by scholars, judges, and regulators concerned with Canadian corporate and securities law, resulting in the adaption of approaches that are ill-suited to the Canadian environment. Canadian capital markets, for instance, are characterized by high levels of share ownership concentration, thin trading problems, intensive inter-corporate linkages, and possibly lower levels of efficiency. In sum, these factors make the problems occasioned by separated ownership and control (the Berle and Means corporation) much less acute in Canada than the problems of majority shareholder opportunism. These factors also suggest that regulatory initiatives should be structured in a way that distinguishes between the problems of large, intensively traded companies and smaller, thinly traded companies populated by retail investors. The authors consider these issues in the context of three case studies: the private agreement exception, poison pills, and a self-interested transaction. This article is available in Osgoode Hall Law Journal: http://digitalcommons.osgoode.yorku.ca/ohlj/vol29/iss4/7 TOWARD A DISTINCTIVE CANADIAN CORPORATE LAW REGIME0 BY RONALD J. DANIELS* & JEFFREY C. MACINTOSH" In this article, the authors consider the impact of the institutional and market environment in which Canadian business operates on the structure of corporate and securities law. The authors argue that the linkages between markets and law have been neglected by scholars, judges, and regulators concerned with Canadian corporate and securities law, resulting in the adaption of approaches that are ill-suited to the Canadian environment. Canadian capital markets, for instance, are characterized by high levels of share ownership concentration, thin trading problems, intensive inter-corporate linkages, and possibly lower levels of efficiency. In sum, these factors make the problems occasioned by separated ownership and control (the Berle and Means corporation) much less acute in Canada than the problems of majority shareholder opportunism. These factors also suggest that regulatory initiatives should be structured in a way that distinguishes between the problems of large, intensively traded companies and smaller, thinly traded companies populated by retail investors. The authors consider these issues in the context of three case studies: the private agreement exception, poison pills, and a selfinterested transaction.

Producer opportunism in retailing contracts

Abstract: This paper analyzes the role of ex post producer opportunism on the optimal design of vertical restraints. It considers vertical contracts as starting points of ex post renegotiation. It shows that the alleged room for franchisor opportunism that seems quite important in franchising contracts can be seen as an insurance device when part of the goal of the contract is to provide a stable payoff to the franchisee. This conclusion holds for various opportunistic strategies: direct eviction of initial retailers, excessive entry of new retailers on the market, or resale price maintenance used to encourage "voluntary" exit of initial retailers.

Producer opportunism in retailing contracts

Abstract: This paper analyzes the role of ex post producer opportunism on the optimal design of vertical restraints It considers vertical contracts as starting points of ex post renegotiation It shows that the alleged room for franchisor opportunism that seems quite important in franchising contracts can be seen as an insurance device when part of the goal of the contract is to provide a stable payoff to the franchisee This conclusion holds for various opportunistic strategies: direct eviction of initial retailers, excessive entry of new retailers on the market, or resale price maintenance used to encourage "voluntary" exit of initial retailers

Contractual relations, foreign direct investment, and technology transfer: The case of China

Abstract: This paper discusses in terms of transactions costs how foreign investors choose contractual forms. It argues that the unusually wide choice of contracts available in China can be shown roughly to correspond to varying degrees of within-firm governance. Other factors, particularly locational choice within China, contribute to reducing the scope for opportunism on the part of the host country where a well-enforced legal framework is lacking. Technology transfer is rendered more complex by the importance of team organization in the technology on offer from firms from Hong Kong, the largest foreign investor.

Federalism, Opportunism, and Multilateral Trade Negotiations in Agriculture

Abstract: When federalist nations are signatories to international economic agreements, potential problems arise because of the inherent conflicts between federal law and legitimate state interests. This paper presents a conceptual framework for analyzing problems surrounding negotiation, ratification, and implementation of international agreements when federations are signatories. The economic model isolates three factors (the variance of state net benefits under an agreement, individual states' opportunity costs associated with the agreement, and state-supported opportunism) as cost-increasing impediments to the successful institution of international economic agreements and highlights opportunism containment as fundamental to credible commitments in international agreements.